11 Jan 2003
Tax Facts are Irrelevant to Columnist Krugman"
(Text of 11 Jan 2003 letter to the Editors of the New York Times and the Syracuse Post-Standard)

To: letters@nytimes.com
Sub: Paul Krugman is incorrect; all 401-K's, pensions, and retirement accounts would benefit.

Dear Editor:

Please check out Paul Krugman's assertion that "If you have stocks in a 401(k), your dividends are already tax-sheltered" ("An Irrelevant Proposal", 07 Jan 2003). A call to a representative for almost any mutual fund should show that Krugman's statement is incorrect.

To the best of my knowledge, only those dividends paid by a 401K or by an IRA are tax-sheltered, and then only if reinvested within the plan. The dividends coming into the plans from investments held by the plans are all subject to the dividend tax that President Bush is asking Congress to abolish. Dividends also determine the yield of a share of stock, and because yield is a factor of the market price of a share, the value stock holdings of pension funds will also improve without the dividend tax.

Stated concisely: All pension and retirement plans rely on returns on investments to appreciate. Dividends, directly or indirectly, are a major contribution to these returns. If the dividend tax were abolished, then all pension plans and retirement accounts would receive the benefits.

Mr. Krugman has been writing about taxes and "the economy" for too long not to know this. If he doesn't know this, then he shouldn't write about taxes and 401K's; if he does know it, he shouldn't make such a statement. Mr. Krugman also probably knows that the rich are paying most of the taxes, but that doesn't keep him from using his standard "...more tax cuts for the rich" complaint. Mr. Krugman and many other columnists (e.g., Bob Herbert, Molly Ivins, et al.) appear to start from an unstated Marxist-flavored premise that all the wealth belongs to all the people, and they conclude that tax cuts "...would mainly go to the richest." (Krugman, 28 Aug 2001). This is semantic corruption. Taxation is an act of taking, not giving; tax-cuts don't "give", they merely reduce what is taken.